26 February 2013
Lawyers, pricing and horse meat – you get what you pay for
Posted by Richard Burcher, managing director of Legal Futures Associate Validatum
No laughing matter: horse meat scandal shows risks of giving in to consumer demands for ever cheaper products and services
There can’t be too many people who remain oblivious to the global coverage of the horse meat furore unfolding in the UK; the widespread clandestine and probably criminal dilution/contamination of processed beef products with up to 100% horse meat. And how is this relevant to legal services pricing? Simple, really. It doesn’t matter whether you are talking processed meat of dubious provenance or legal services: you get what you pay for.
At the end of all the investigations and enquiries, it will no doubt be concluded that the cause was greedy and dishonest people looking to make a quick buck. At one level, that will be quite correct. However, it ignores a dynamic that opponents of trade in ivory, bear bile and shark fins are acutely aware of – the practice would end overnight if there was no demand for, in this case, incongruously cheap processed meat meals. Enter therefore, the other culprit: the customer/consumer/client.
One of the major retailers in the UK, which supplies large quantities of frozen processed meat products for school dinners on behalf of local authorities, is blaming the scandal on amongst other things, those same local authorities, for buying on price only instead of looking to achieve a judicious balance between price, nutritional quality, supply chain integrity and fair value.
Their position seems to be something along the lines of, “we didn’t do this deliberately or knowingly, but you forced us into buying products from dodgy sources by screwing us down on the price to a point where it was the only way we could remain viable!”
At one level it is a pretty lame excuse, but one can have sympathy for the position. It is all very well the procurement representatives of an organisation with huge buying power throwing their weight around, beating up suppliers and dictating price (think big supermarkets versus small independent farmers and growers) but as Voltaire opined, “with great power comes great responsibility”.
In essence, consumers sometimes need saving from themselves because of their inability or intransigent refusal to understand one of the fundamental laws of economics, namely no matter how much you may wish for it, you cannot get a bottle of champagne for the price of a bottle of beer. In other words, you get what you pay for. That’s life.
If someone does sell you a bottle of champagne for the price of a bottle of beer, there will be something wrong. It will either be stolen or diluted or it is really methode champenoise or Prosecco fraudulently mislabeled as champagne. As the old saying goes, if it is too good to be true, it probably is.
By all means incentivise and require efficiency and effectiveness, streamline, simplify, create new delivery models and do whatever you can to cut fat out of the legal process to reduce production cost and therefore price. It is essential that this occurs and it is unacceptable and plain wrong for the profession to say it can’t be done.
But we must remain cognisant of the fact that there comes a point where there is no longer any fat to cut out of it and you begin to cut out muscle and tissue, with the inevitable long-term damage.
Many analogies can be drawn between the health system and the legal system. We are reminded on a regular basis of what happens when we cut cost injudiciously, under-resource and cut corners in the health system; when we don’t have enough doctors, when those doctors are expected to work ridiculous hours, when the nurse to patient ratio drops below optimal levels. At best, patients suffer. At worst, they die.
To date, a significant proportion of the legal profession has taken the view that the best way to maintain market share and profitability is to undercut competitors. In short, they participate in the solicitor/client pricing relationship on the terms of engagement defined by clients; a managerial crudity that an Economics 101 student would require a suspension of disbelief to comprehend.
How successful has this strategy been? A report recently suggested that “price pressures have forced hundreds of firms into crisis talks” with their regulator (although this was denied by the Solicitors Regulation Authority). They have, it said, been “chasing work without pricing realistically”.
We have great difficulty seeing any light at the end of the tunnel for firms that cannot or will not take a robust strategic view of what position they want to occupy in the market , engage far more constructively with clients on pricing and start using intelligent and sophisticated pricing strategies to reinforce their market position while still addressing their target clients pricing needs. This does not I hasten to add, equate to further discounting.
For most though, this means having to concede that pricing is a skill and not a mindless administrative function. It also means having to concede that it is a skill most lawyers don’t possess. Res ipsa loquitur.
Until such time as they acquire those pricing skills and price negotiation skills, by which we mean amongst other things, the ability to persuade clients that they get what they pay for, they will find themselves confined to the bottom end of the market which, as far as we can see, has about as much future as the eastern European equine population.
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